The cryptocurrency market has been quiet and far from rallies for over six months. With the prices of Bitcoin, Ethereum and other cryptocurrencies falling, could it be time to invest? Will crypto survive the crash and bounce back? Here’s what you need to know about these questions…
Why is the Bitcoin and altcoin market falling?
Record high inflation, fear, rising interest rates and loss of confidence in crypto investments… Analysts say most of the factors are “macro”. This means that they relate to the economy as a whole, rather than to any particular market flaw. In the words of Bill Barhydt, Abra’s manager:
There is extreme fear in the markets right now. The market has priced in several rate hikes. At the same time, they started pricing in a serious recession… We are in total risk aversion mode for all cryptos. Just like we are in risk mode.
However, experts say some factors are specific to crypto investments. Cryptocurrency platform Celsius has recently paused all withdrawals, swaps and transfers between accounts “due to extreme market conditions”. This in turn caused more panic among crypto-specific investors.
The New York Times recently featured 40-year-old investor Jacob Willette, who deposited all of his savings in an account with Celsius. According to the Times, when the platform froze more than $8 billion in assets, Willette received no assurance that her money was safe.
Coinbase melted in Q1 of 2022
Popular crypto exchange Coinbase made a loss of $430 million in the first quarter of 2022. Meanwhile, the company’s stock dropped 81%. Moreover, we heard that Coinbase laid off a fifth of its employees. However, Coinbase has also survived other crypto winters. Therefore, many analysts are not worried about the future of the stock market.
On the other hand, this drop is not exclusive to the cryptocurrency market. The Dow Jones Industrial Average, one of the major stock indexes, entered a bear market in mid-June 2022. In the first week of July, the S&P 500 was officially in a bear market. The crypto crash is being felt across the industry, beyond the losses suffered by investors.
Bitcoin and altcoins crashing? Or are we at the bottom?
Before we delve into the future of crypto investments, let’s delve further into the causes of the latest crash. According to data from Coinbase.com, in early July 2022, Bitcoin hit 68.33% below its ATH level of $68,789.63. A bear market refers to investments that reach 20% below their peak over an extended period of time. So Bitcoin is definitely in a bear market. Ethereum and altcoins tend to follow the path of Bitcoin. Therefore, we can look at Bitcoin as an indicator of the overall market.
Will cryptocurrencies survive these levels?
While the stock market has a long history of ups and downs, stock markets first started in the US in the late 1790s, crypto has no such history, according to the Library of Congress. Knowing that the stock market has experienced multiple bear-bull periods over the centuries gives investors peace of mind. However, it is encouraging to see that the cryptocurrency market has survived multiple crashes in its short history. GOBankingRates.com has documented at least seven major Bitcoin crashes and recoveries dating back to 2011, when Bitcoin lost 99% of its value. The phrase “crypto winter” derives from these crashes.
As TheGuardian.com points out, “winter comes before spring” and investors should put that aside and “wait for the market to thaw” so to speak. However, this latest crash, coupled with an impending recession, has made many investors hesitant to invest their money in crypto. As a result, as Binance CEO CZ pointed out, this was not the first bear market, and it probably won’t be the last.
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